Wal-Mart’s Earnings Miss May be Target’s Gain

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Today, all eyes are on Target Corp. (NYSE:TGT) as it reports Q3 earnings before the bell. This may be a great time to enter a trade on this popular name, as the earnings news will be out and the holiday shopping rush will be fast approaching.

The company operates upward of 1,750 stores in 49 states and the District of Columbia. Its Target general merchandise stores carry an assortment of general merchandise and food, and its SuperTarget stores contain general merchandise items plus a full line of food items. It also has an online store, Target.com, which retails general merchandise — including many items found in its stores and a complementary assortment, such as extended sizes and colors, sold only online.

Target operates two segments: Retail and Credit Card. The Retail segment includes all of its merchandising operations, including its integrated online business. The Credit Card segment offers credit to qualified guests through its branded credit cards: Target Visa and the Target Card. It also offers a branded Target Debit Card (collectively REDcards).

In August, the company gave guidance of third-quarter diluted EPS of $0.70 to $0.75, and full-year 2011 diluted EPS of $4.15 to $4.30. With the stock currently trading at $53, this gives it a P/E ratio of 12.50 using the midpoint of the guidance range.

Target sports a decent dividend yield of 2.3%, and is currently trading at only 0.5 times sales — about the cheapest ever using this metric. SAC Capital recently added to its position in TGT, providing a further catalyst to share prices. We also feel that yesterday’s earnings miss from Wal-Mart (NYSE:WMT) may be Target’s gain, with buyers stepping up slightly in class.

Technically, TGT has held support at the key $50 level and seems poised to make a move to close the gap between $55 and $59 from the Jan. 5 sell-off, with a target price (no pun intended) of $57 by April expiration.

Based on TGT’s current market price of $53.18 and using a target price of $57, a target date of April 20, 2012, and $1,000 of investment capital, this is an excellent candidate for making some intermediate-term options gains.

To play this with options, visit TradingBlock.com, create a free Instant Login and try the TradeBuilder feature. Input the ticker, target price and date, and investment amount, and you’ll see several ways to trade that include buying the TGT April 45 Call, buying a call spread, selling an April put spread, or buying the stock. Best of all, you can see a potential profit-and-loss outline for each strategy.

Create your free login, and get access to these TGT option trading strategies by visiting the TradeBuilder here.

 

Tim spent 13 years as Chief Options Strategist at Man Securities in Chicago, four years as Lead Options Strategist at ThinkorSwim and three years as a Market Maker for First Options in Chicago. Tim makes weekly appearances on Bloomberg TV  “Options Insight”, Business First AM “Trader Talk”, TD Ameritade Network “Morning Trade Live” and CBOE-TV “Vol 411” to discuss everything from volatility and option related.


Article printed from InvestorPlace Media, https://investorplace.com/2011/11/wal-marts-earnings-miss-may-be-targets-gain-wmt-tgt/.

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